Business News

Bombardier unveils a number of CSeries orders as airshow gets underway

by
The Canadian Press | Story:
119065 -
Jul 15, 2014 / 10:38 am

Photo: The Canadian Press. All rights reserved.

Bombardier's CSeries 100 touches down after its maiden test flight on, September 16, 2013 in Mirabel, Que. THE CANADIAN PRESS/Ryan Remiorz

MONTREAL - Interest in Bombardier's new CSeries jets appears to be gaining momentum with the plane maker announcing 24 new orders valued at more than US$1.5 billion Monday even though test flights have been halted and the aircraft grounded because of an engine problem.

Chinese company Zhejiang Loong Airlines, which began domestic service last year, has signed a letter of intent for 20 CS100 airliners that would be worth US$1.28 billion at list prices if all the aircraft are delivered.

Petra Airlines, based in Jordan, also signed a letter of intent to buy up to two CS100 and two CS300 airliners, with the full value of the four aircraft listed at US$298.4 million.

"For the general public, having some good news with the CSeries right now, that's a really good thing," CEO Pierre Beaudoin said in an interview after the deals were announced at the Farnborough International Airshow in Britain.

A cloud has hung over the CSeries since test flights were grounded the end of May when "an engine-related incident" damaged a test aircraft during maintenance testing on the ground.

Engine manufacturer Pratt & Whitney has said the problem was a seal issue within the oil system and Bombardier expects test flights to resume within weeks after a fix is completed.

The Montreal-based aircraft manufacturer (TSX:BBD.B) said it has used the delay to update software and components while ground testing continues.

Beaudoin acknowledged that the delay in resuming flights has taken longer than expected, but he insisted the engine incident is not a major issue for customers who understand the challenges of testing programs.

The new orders Monday were in addition to the conversion of a letter of intent and an option into a firm order by Falcon Aviation Services LLC, based in Abu Dhabi, for two CS300 jetliners.

Before the air show began on Saturday, U.K.-based Falko Regional Aircraft Ltd. also signed a letter of intent for up to 24 CS100 jets, valued at an estimated US$1.5 billion.

Beaudoin said the CSeries is getting good world-wide distribution with the addition of a Chinese airline, a leasing company focused on regional aircraft and another Middle Eastern carrier. He said there's a good mix of customers even though some critics say the plane doesn't have enough big brand name buyers.

Analysts said the first sales since February's Singapore Airshow are positive for the aircraft.

"We believe these orders should quiet some concerns in the marketplace about the strength of the CSeries program," wrote Benoit Poirier of Desjardins Capital Markets.

While the CSeries isn't expected to make an appearance at the Farnborough Airshow, the 110- to 160-seat commercial jets are seen as attractive because they are more fuel efficient than similar-sized planes currently on the market.

Bombardier has said it expects to have 300 firm orders by the time the larger CS300 plane enters into service in the second half of 2016, a year after the first CS100s are delivered. It currently has 203 firm orders.

Analysts anticipate it will reach that target.

But Cameron Doerksen of National Bank Financial Doerksen expects an almost two-month delay in flight testing will mean first deliveries of the CS100 more likely start towards the end of 2015 at the earliest.

Beaudoin said the entry into service target by the end of 2015 should be broad enough to compensate for the test flight delays.

"I don't want to assume that we've lost two months. I think we can catch up some but we had given ourselves a six-month window so whoever is saying a precise date (it) is pure speculation on their part."

Walter Spracklin of RBC Capital Markets described the orders as positive but said there's still a question about the total market potential for the CSeries because the current rate of orders is far less than the 7,100 units that Bombardier has forecast over the next 20 years.

Meanwhile, Export Development Canada, the United Kingdom's export credit agency and Quebec's economic development agency, Investissement Quebec, said they have jointly developed a working model to provide financing to CSeries customers. Quebec is earmarking $1 billion while the Canadian agency has no set limit. Other countries that include major suppliers of the aircraft are also expected to participate.

The aircraft financing will help customers to get debt financing because there's no residual value established in the market for a new airplane.

Bombardier also announced that Flight Training Alliance, a newly formed joint venture between CAE (TSX:CAE) and Lufthansa Flight Training, will be the exclusive training provider for CSeries aircraft pilot and cabin crew training worldwide.

The first simulator and training program will be offered at the Bombardier training centre in Montreal where CAE has built the world's first CSeries aircraft simulator. Additional training will follow in Europe, North America and Asia.

Bombardier also announced that Latvia-based Air Baltic is the previously announced undisclosed customer that converted options to firm orders in February for three CS300. The original order was for 10 planes plus options for 10 more.

On the Toronto Stock Exchange, Bombardier's shares closed up six cents at C$3.83 on Monday.

Note to readers: This is a corrected story: An earlier version that said $1 billion was commitment of all three governments.

If ICBC asks your doctor for your information you may wonder: Can ICBC ask my doctor for my medical information? Can ICBC request a medical report from my doctor without my consent? What is ICBC entit...